OPTIMAL INVESTMENT PORTFOLIO SELECTION BASED ON SECTOR ROTATION STRATEGY
The Indonesia economic growth has been getting better over the years motivates both domestic and foreign investors to invest their funds. One of the best return investment instruments in Indonesia is equity fund. The objective of this investment is to achieve the best return through capital gains an...
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| Format: | Final Project |
| Language: | Indonesia |
| Online Access: | https://digilib.itb.ac.id/gdl/view/78788 |
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| Institution: | Institut Teknologi Bandung |
| Language: | Indonesia |
| Summary: | The Indonesia economic growth has been getting better over the years motivates both domestic and foreign investors to invest their funds. One of the best return investment instruments in Indonesia is equity fund. The objective of this investment is to achieve the best return through capital gains and dividends.
Investors utilize investment strategy as important guideline to maximize future benefits. Regrettably, they often finish up with a “buy-high, sell-low” strategy. Not all sectors of the economy perform well at the same time, so sector rotation strategy could be an appropriate option in an attempt to beat the market. Investors can predict which sectors will be productive based on four basic phases of business cycle: expansion, peak, contraction, and trough (Collander, 2004).
This research aims to identify the relationship between business cycle and selected stocks performance in Indonesia Stock Exchange. Sharpe ratio and additional indicators such as holding period return and geometric average return are applied as the proxy to measure the effectiveness of sector rotation implementation by comparing active strategy with passive strategy.
The secondary data of this research such as Jakarta Composite Index and Sectoral Index as well as Indonesia GDP Growth and Inflation Rate is taken to analyze business cycle identification from the period of 2000-2014. The author also makes sector choice analysis through sector rank table from 2000 to 2007 and selects the stock based on LQ45 Index in 2007-2008. Portfolio backdated simulation is built after defining the weight of each stock in specific business cycle phase.
The results proved that sector rotation strategy based on modified portfolio by Solver and balance weight are effective for maximizing investors’ wealth as well as give greater return in comparison with passive strategy. Sector rotation strategy is also possible to be implemented into real investment world. |
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